Russia sanctions put China's banks in "tight spot," U.S. says PRC trade with Russia not enough to offset sanctions, & "Moment of reckoning": China’s BRI investment shift -- #China Boss #news 2.28.22
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Russia sanctions put China's banks in "tight spot”
The Industrial & Commercial Bank of China Ltd. (ICBC) and the Bank of China, two of China’s largest state-owned banks, “are restricting financing for purchases of Russian commodities” to protect their access to the U.S. dollar, Bloomberg has reported. However, the “banks’ response could be temporary,” and “[i]t’s unclear whether Chinese banks have pulled back from other forms of financing for Russian companies and individuals,” Bloomberg analysts cautioned.
Bloomberg:
The curbs highlight the difficult balancing act facing China’s biggest financial institutions and the nation’s president, Xi Jinping. While Russia is a major energy supplier to China and the countries often find themselves aligned in geopolitical disputes with the U.S., Russia’s economic weight pales in comparison to Western nations that buy many of China’s exports and control its access to the dollar-dominated international financial system.
Ben Kostrzewa, a legal consultant at Hogan Lovells in Hong Kong, told Bloomberg that Chinese banks have, historically, “tak[en sanctions compliance seriously,” and that “[t]hey don’t want to be sanctioned themselves, they can’t lose access to U.S. dollar transactions, so they are going to have to think about it very seriously -- whatever the geopolitical impact might be.”
The decisions to limit financing for Russia purchases also indicate that - even though China and Russia have strengthened, both, economic and military ties over the past few years - “China doesn't want to be seen as openly enabling Russia,” Axios reporters said.
Over the weekend, the US, EU and their allies approved a ban to exclude some Russian financial institutions' access to the SWIFT international payments system. The ban “would mean that there would be no possibility to execute transactions between Russia and most of the rest of the world with immediate effect,” but “ would not directly affect bank transfers within Russia and between Russia and China,” because “parallel systems have been developed,” Euractiv said. Emphasis added.
Euractiv:
There are ways for banks to do international transactions without SWIFT, but they are expensive, complex, and require a high degree of interbank trust.
Meanwhile, more than half of Russian government revenues are generated through fossil fuel exports. Through an exclusion from SWIFT, most of these exports would not be paid anymore, which would lead to a deterioration of Russian government finances and could likely limit its ability to finance war efforts.
Still, the West’s economic sanctions against Russia have “put China’s state-owned financial institutions in a tough spot because many have established close ties with Russia over the past decade,” Bloomberg said. Most Chinese banks are state-owned.
Bloomberg:
ICBC’s Moscow branch alone had close to $1 billion of assets by the end of 2020 and offered an extensive range of yuan-denominated services, including deposits, lending, cross-border settlement and trade finance. Bank of China, Agricultural Bank of China Ltd. and China Construction Bank Corp. all have operations in Russia.
China’s largest policy banks -- China Development Bank and Export-Import Bank of China -- have provided tens of billions of dollars of credit to Russia as part of Xi’s Belt-and-Road Initiative, funding everything from infrastructure to oil and gas.
For the rest of Bloomberg’s report, Chinese banks limit financing for Russian purchases: Bloomberg, click here. For Axios’s update, Western sanctions push Russia and China even closer together, click here.
U.S. says China’s trade with Russia not enough to offset sanctions
China business has also been significantly impacted by Western sanctions against Russia in other ways, according to various news reports. Sources told Bloomberg that China’s coal importers are blocked from accessing Singaporean banks’ credit lines to finance their shipments from Russia, and state media outlet Global Times said orders have been cancelled and shipments diverted, though it blamed those disruptions directly on the Russian-Ukranian conflict, itself.
The U.S. government Friday said that "China's trade with Russia isn't enough to offset the impact of U.S. and European sanctions on Moscow,” CNBC reported.
CNBC:
China and Russia’s share of the global economy is far less than that of the Group of Seven countries — which includes the U.S. and Germany. That means China “cannot cover” the impact of the sanctions, U.S. press secretary Jen Psaki told reporters late Thursday in Washington.
For the Global Times’ report, Russia-Ukraine conflict starts to affect China-Europe trade, click here. For CNBC’s White House press conference update, China's trade with Russia won't be enough to offset sanctions, U.S. says, click here.
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